The G20 and IMF Reform

Barry Carin & Ambassador Andrés Rozental

CIGI

“If at first the idea is not absurd, then there is no hope for it.” Albert Einstein

“When you come to a roadblock, take a detour.” Mary Kay Ash

Trolling through our archives of memorable quotations, three stood out as particularly apt in light of the refusal of the US Congress to ratify the 2010 G20 decision to reform the governance of the International Monetary Fund:

“Washington's political chaos proves it's time for a de-Americanised world.” Liu Chang

“Even if you’re on the right track, you’ll get run over if you just sit there.” Will Rogers

“Lead, follow, or get out of the way.” Thomas Paine

In a Financial Times op ed last April, Fred Bergsten and Ed Truman both former Assistant Secretaries of the US Treasury for International Affairs, echoed Thomas Paine, stating “The time has come to think the unthinkable: the Fund should move ahead without the US. If the US does not want to participate in reforming the IMF, it should get out of the way.”

The US Congress has refused to approve the reforms, which would add modestly to the Fund’s resources and, more important, shift voting power away from Europe and toward the dynamic emerging market economies while holding US voting power unchanged. They proposed finessing the US veto by making permanent the 2012IMF initiative to arrange temporary bilateral credit lines of nearly $500bn from 38 countries augmenting the Fund’s capability to finance its lending. The G20, with the passive acquiescence from the US executive branch, could endorse its conversion into a permanent arrangement of a web of bilateral credit lines, placing decision-making in the hands of the funding countries, not the US.

The G20 could ask the IMF to set up a parallel “committee”, without US representation, to advise on and coordinate the network of bilateral arrangements. Of course, a standardized multilateral agreement is more efficient than orchestrating a large number of bilateral understandings. But faced with the US Congressional intransigence, the IMF is certainly capable of producing an agreement to move towards standardization and harmonization of the bilateral web.

The Congress may not complain, since the initiative could be communicated as an effort for the rest of the world to do the scooping necessary after the American pooping.The initiative might be a wake-up call to the Congress living in the late 20th century. In any case, taking the hand cuffs off the G20 could unleash more out–of-the-box thinking.